As Covid-19 continues to wreak its devastation on the corporate landscape, dozens of pension schemes could fall into the Pension Protection Fund. However, a no-deal Brexit could scupper that option for up to one-fifth of distressed employers with an EU connection.

This issue affects UK-based, cross-border schemes where a sponsoring employer of the arrangement is EU-based and where that company does not have an ‘establishment’ in the UK. Currently, the pensions lifeboat protection is in place for members of eligible UK defined benefit schemes when their sponsoring employer becomes insolvent. To be eligible, a pension scheme has to have its main place of administration in the UK, which will remain unchanged with Brexit.

However, the mechanism for triggering a PPF assessment period where schemes have EU-based employers could be altered from January 2021 when the transition period ends.

A recent case of a scheme that was not entitled to compensation from the PPF is Flybe, which collapsed into administration in March due to the impact of the coronavirus on flight bookings, after struggling for months to balance its books.

As the pension scheme was registered in the Isle of Man, its members were not entitled to protection from the pensions lifeboat.

Jane Kola commented:

“The best solution for these schemes is to have a UK resident sponsor, even if it is a shell company with covenant supplied by overseas companies through intra-company support”.

Read Jane’s comments in Pensions Expert.